March 19, 2015 by Paul Goldsmith
Well, what a budget that wasn’t. It was supposed to be an election giveaway, but it wasn’t really. It was delivered with an eye on the election, and more of that later, but it’s worth remembering that very little within it will be delivered if the Tories aren’t in government after May 7th (there will be a new budget delivered by whoever is Chancellor in June). The Office for Budget Responsibility (OBR), whose job it is to independently make forecasts and comment on government economic policy – said that “The coalition government’s policy decisions in this Budget are not expected to have a material impact on the economy.” So, it’s all about the politics.
On the macroeconomy, as a whole, the politics look good. The UK grew 2.6% in 2014, faster than any other advanced economy but lower than the 3% predicted in December. There is a 2.5% growth forecast in 2015, up from 2.4% predicted in December, followed by 2.3%, 2.3%, 2.3% and 2.4% in the next four years – all of which suggest sustainable economic growth. There is record employment in the UK, with jobless rate to fall to 5.3% this year. Trade deficit figures (the value of exports minus the value of imports) are “the best for 15 years” – showing that Britain is making and selling things that people want. Living standards are “higher” than in May 2010, according to OBR data, with households better off by an average of £900 in the last five years, and inflation is projected to fall to 0.2% in 2015 – which emphasizes once again that this is sustainable economic growth without the economy overheating.
There was joy also for certain (likely to vote) parts of the electorate. Pensioners got to release money from their annuities at their marginal tax rate rather than the rather punitive tax rates they have been paying. A “Help to Buy” ISA was created in which the government commits to top up by £50 every £200 someone puts in there to build up a deposit to buy a home. This may help to address the stark fact that a decade ago 60% of 25 to 34 year olds owned their own home but now it is less than 33%. But, little was done on actually building houses to meet that demand, so the result is not a particularly sustainable plan for the housing market.
The personal income threshold (amount you earn before you have to pay tax) and the higher rate threshold were raised – which, quite frankly, gives everyone a tax cut – with the latter giving middle and high income earners more money. Those with savings who pay the basic rate of tax will no longer pay tax on the interest from those savings, which is all very well, if you actually have any savings (i.e. are likely to be older). There were tax breaks for oil firms and also for those investing in oil – which is not exactly the best news for the environment – but may make some Scots happy.
Then there were a few scraps thrown to the left. Firstly, Labour’s charge that public spending was to be cut to levels last seen in the 1930s has been shot by a change in planned spending that means it will now be cut to levels last seen in 2000 (under a Labour government). Then there was an increase in the Bank levy, and the much trailed tax on “diverted profits” – otherwise called the “Google Tax”, which comes into effect next month and collects more revenue from companies who make profits here but divert them abroad to a lower tax regime. Osborne also reduced the tax free pension allowance by £250,000 to £1,000,000, which not only raises £1.8 billion but was relied upon by Labour to part fund its tuition fee cut.
Ed Miliband was reduced to the normal mantra of the benefits of growth not being felt in enough peoples’ living standards. He also decided that there must be some sort of “secret plan” to cut the NHS to make their sums add up in the future (with no evidence for that). The Greens lamented the encouragement of oil exploration and said that more should be spent on “investment”, Finally, Nigel Farage’s advisers had come up with the best line, the one in my title – which pointed out that the Tories “long-term economic plan” has been made even longer by decisions that will delay the deficit being reduced to zero and delay the debt reducing – meaning they have kicked that target into the long grass. UKIP arranged for a bus to go past to point out that the debt has doubled since David Cameron came into power – although that of course misses the point that they picked up a £168bn deficit so it would have been hard for that not to have happened.
Osborne pointed out that (unlike Labour), the Tories are “fixing the roof whilst the sun is shining”, in that he is not spending all the proceeds from growth, but working to get the deficit down. There was a change in emphasis and language, with the Chancellor pointing out that by 2019 we will have moved “from austerity to prosperity”.
All in all though – it was pretty much a nothing budget. Far more interesting will be the one after the election. I’ll look forward to that one then.